In a free market, there would be a price at which it is viable for all state or any other insurer to sell their services. We have this problem in Florida too.
I've had Allstate ins. since we moved to Fl. 9 years ago. I was lucky to get rid of our auto policies with them & go with a much cheaper auto carrier. I don't dare try to find a cheaper homeowners policy as I don't think any exist. Even with no claims & our area does not get hit by hurricanes (knock on wood) our policy has increased 100%. They should allow all Fl insurance companies to include all policies in the country instead of just using Fl as an independent state with the premiums & losses being determined by what happens in Fl.
This is true, and if someone (government) is mucking up the free market for insurance, it will cause these kinds of problems.
However, insurance companies have an additional problem. They need to spread out their risks, so that no single disaster can affect too large a portion of their client base. This is probably the problem here. Allstate may have too much market penetration in New Jersey.
Of course, there's another way around this problem, it's called reinsurance. That's where an insurance company, that insures other insurance companies, takes on a targeted portion of the risk, to mitigate exactly this kind of problem.
I wonder why Allstate isn't just getting reinsurance for some portion of their home portfolio in New Jersey. Probably government interference.